Here’s my theory on the ominous decline in consumer spending, the widening crack in the economy that suggests leaner times ahead.

When the Commerce Department reported the spending slowdown last week, unemployment and stagnant wages received the blame.

But I think there’s another reason Americans are cutting back: They’re trying to pay their enormous bills for wireless phone service.

Consumers may be spending less overall, but they’re still trading up to smartphones with more expensive service plans. Those who already own smartphones are adding iPads and other gadgets that increase their monthly bills.

These gadget sales aren’t turning the economy around, but they’re doing wonders for the wireless industry.

A few days after the consumer-spending news, Verizon Wireless said half of its customers are now using smartphones. It also surprised analysts by reporting that it’s now making $56.13 per month per customer, up about 4 percent from last year.

AT&T may bring even more surprises Tuesday when it reports earnings.

Broadly, global wireless revenues should reach $1.5 trillion this year, tripling over the past decade, according to Chetan Sharma, an Issaquah-based industry analyst.

"Astronomical" sales of data — largely since the iPhone’s debut in 2007 — have more than offset declines in voice and message services, he noted in a report last week.

AT&T — the largest beneficiary of the iPhone effect — saw data sales grow from $689 million in 2004 to $22 billion in 2011, he noted.

To maintain profit margins and keep a handle on surging data usage, the leading carriers have moved from unlimited data plans to tiered plans.

The cost per gigabyte may go down for some, but the carriers will do fine. That’s because overall usage continues to grow as people use faster, higher-resolution devices to access more video and other content via wireless networks.

Sharma expects carriers will see strong growth in data-access sales for several years. He believes this will peak in three or four years, after which the industry will look to services and applications for its next wave of growth.

So will industry sales triple again over the next decade?

"I wouldn’t be surprised," Sharma said. "There’s a tremendous amount of growth left in the developing markets."

Where this money will come from is the big question.

Households typically spend around $1,000 a year on technology, including their phone, cable and Internet bills. In general, tech has taken about 4 percent of disposable income over the last decade, Sharma said.

As people spend more on wireless, they reallocate and cut back on things like wired phone service, he explained. Consumers are now spending about 43 percent of their tech budgets on wireless and he expects that to reach 50 percent early next year.

"The spend on cable and Internet is growing but slowing, and the majority of the growth is coming from the spend on cellphones — that is, on both voice, as well as data," Sharma said.

This has to be consuming a larger share of Americans’ disposable income. Consider the new Verizon and AT&T plans. For smartphones, they charge a minimum of $90 to $95 per month, with 1 gigabyte of data access. That’s close to $1,200 per year.

Yet if wireless costs are affecting overall consumer spending, this isn’t yet apparent in national spending reports, according to economic consultant Joel Naroff in Holland, Pa.

Naroff said spending on services isn’t rising much. In fact services — which includes real estate and health care, and accounts for about 65 percent of spending — is seeing weak increases.

"More than likely it’s putting pressure on people’s budgets and they’ve cut back in other places," he said.

New devices and online services will also encourage people to spend even more on wireless data services in the next few years.

Apple’s "retina display" technology started a race toward devices with higher density displays, which consume more data. Just around the corner is ultrahigh definition video with 4,000 lines of resolution.

As people embrace online services that store and stream content, they’ll depend even more on carriers to provide constant, fast service. And it’s going to cost them.

I’ve been thinking about this while testing new Android phones that come preloaded with Dropbox, a service that automatically uploads photos and videos to an online storage locker.

It also struck me when testing Microsoft’s upcoming version of Office. By default, it stores copies of all files online in the SkyDrive storage service, though Microsoft has also built it in a way that minimizes the amount of data that’s transferred.

A bigger concern is the potential cost of streaming video services like Netflix, which uses up to 2.3 gigabytes per hour to stream a movie in high-definition. That means watching one could cost $60 if you’re streaming it over AT&T and you’ve used up the data allocated by your "Mobile Share" wireless plan.

That would definitely lead to reduced consumer spending in my household.

The mobile-services industry has been generating revenue for 30 years, but the way mobile businesses make money will change dramatically over the next decade, new research suggests, and it won’t be in traditional services like voice, messaging and data plans.

The findings come from Chetan Sharma, chief executive of an eponymous tech consultancy, frequently called to testify as an expert about all matters of mobile business in cases before the U.S. International Trade Commission.

Sharma predicts mobile operators won’t be able to hang on to the lion’s share of revenue in the $1.5 trillion mobile-services market world-wide if they focus on sales of traditional services.

In major markets, Sharma said, “revenue curves have peaked for voice and messaging and are [already] on the decline.” Voice revenue is decreasing in the U.S., Japan and Western Europe, he said. Data revenue should continue to rise for the next three to five years but will then start to decline, he predicts.

Sharma predicts a new wave of service providers stand to win in mobile, a so-called “fourth wave” of mobile businesses that won’t necessarily need mobile operators’ help to rise to the top, the way they did in the early years.

We interviewed Sharma about the impact of mobile market dynamics on start-ups and the funds backing them. Below is an edited excerpt of the conversation.

Q. Who’s going to make money in mobile in coming years?

A. Mobile operators will have to organize themselves and invest in the “fourth wave” in mobile, which creates opportunities for start-ups and the venture community.

Look at the acquisitions, and services some [operators[ are launching: SingTel acquired the mobile advertising company Amobee, Verizon Wireless acquired Hughes Telematics,Telefonica acquired Jajah and is launching TUMe [a chat app that competes with Skype], AT&T has an emerging enterprises organization…

Competitive dynamics will lead to new funding and go-to-market channels for mobile start-ups for several years.

In 2012, the global mobile industry revenue will hit $1.5 trillion. This revenue has tripled in the last 10 years. Mobile operator’s revenue reached a new milestone at the end of 2011. The total global mobile operator revenue exceeded $1 trillion for the first time. The operator profits have more than doubled in the last 10 years. The trifecta of fast broadband networks, well-designed mobile computing devices, and the insatiable supply of content, applications, and services has unleashed consumer demand for more like never before. If we look at the history of the mobile industry, the first generation was primarily focused on voice and this era persisted for a good 10-15 years before 2G messaging and very basic data services were introduced. A decade later, data services started to become more interesting as 3G networks enabled faster access speeds and new applications. When Apple released iPhone in 2007, followed by Google’s Android in 2008, the industry was turned on its head. While the implications were apparent at the time, the far-reaching impact of these new devices on how people work and live is still unraveling.

The changing face of the industry also impacted the business models, the revenue streams, and the value chain power structure. For much of the last three decades, voice has dominated the revenue streams for almost all operators. However, in 2013, voice revenues will fall below the 60% threshold globally. The drop in voice revenues has been compensated by the rise of messaging revenues and the data revenues. However, some nations and operators have started to experience declines in messaging revenues. The access revenue stream is still very much a growth story and is rising fast for almost all the operators.

We studied the revenue growth patterns for 65 leading operators in 30 major global markets to understand when the revenue in certain segments rise, stagnate and fall. The underlying data yields some interesting and consistent patterns that are instructive on how things might shape up over the course of the next decade.

The sigmoid or the S-curve growth has been well understood and applied to various disciplines. To understand the various revenue growth curves, we segmented the operator revenues by voice, messaging, and access and correlated them with subscription growth. In a majority of the cases, as the subscriber penetration approaches 70-90% band in a given segment, the Net-Revenue starts to hit its peak, stagnates for a bit and declines. The amount of time the revenue curve stays in the stagnation phase depends on the market competitive dynamics and usage profile of the subscribers in a given country.

The first revenue curve of voice is already in decline for majority of the developed markets like the US, Japan, and Western Europe. The second revenue curve of messaging is on the decline in some nations like the Philippines, Netherlands, Taiwan, Spain, and Italy while approaching saturation in countries such as the UK, France, and the US. Both these curves are on the rise in developing countries, which are still in the subscriber growth phase. The third revenue curve of access is in the growth mode around the world for all nations; however, the margin pressure on this revenue base is the strongest of the three as the operators rush to meet the growing data demand that is doubling every year in most major markets. We are likely to see the growth continue for the next 3-4 years before this curve also starts approaching its peak. At this stage, all three revenue curves will be in decline. This means that the net revenue for some of the operators and for some nations will start to go down, in some cases precipitously. This will happen to operators around the world at different time intervals, unless the fourth revenue curve starts to take shape in the near term to help cushion the decline.

The growth of revenue in this fourth curve will be critical. For some operators, a weak fourth curve will be fatal. They won’t be able to arrest the fall in the overall net revenue and investor pressure will force them to consolidate or learn to live with lower margins or go out of business.

As such, it is important to understand the importance of the fourth curve and formulate strategies that extend the lifetime of the previous three curves such that net revenues and net profitability stay healthy over the course of this decade. The most interesting dynamics of this fourth curve is that other racers are not only the fellow operators but some new well-funded service and application providers. They are using new gear, are not constrained by the same rules, can change gears at will, and are ruthless in their execution. All this renders the traditional telecom organizational structure and the way of life - obsolete.

Based on the strategy chosen, the operators will likely fall into three major buckets: access only, enabler, and digital lifestyle solution providers. The operator might play all three roles depending on the vertical in a given country. However, without playing a significant role in the latter two categories, operator revenues over the long haul will start to resemble those of utilities – billions of dollars in revenue but the margins might shrink to 8-12% from the current 30-40%.

The next 2-5 years will be critical for operators worldwide. The strategies they pursue and the investments they make will define their future existence for the coming decade. Operators who are investing heavily in the 4th curve have a good shot at seeing the end of the decade but a good many will succumb to the powers of the growth curves, leading to consolidation in almost all markets or they will gradually morph from operators to utility providers. Many will be caught unawares by the shifting sands of revenue and their inability to mutate to compete effectively in the IP world.

Operator’s dilemma – The 4th wave analyzes the four mobile revenue curves in detail and discusses the strategies needed to increase the net revenue and the investment areas that can lead to new revenue and healthier margins for operators around the world.

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds,future research reports, and articles. The next US Wireless Data Market update will be released in Aug 2012. The next Global Wireless Data Market update will be issued in Sept 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

In the fall, Toronto resident Pearl Chen placed quarter-size stickers on the 30 or so spice containers in her kitchen. Now whenever she taps her Samsung smartphone against a bottle of turmeric, say, the device does a Google (GOOG) search for recipes featuring the spice. “I can scan it and get ideas for what to cook,” says Chen, 31, the founder of Karma Laboratory, a technology startup focused on education. She sees the stickers as a way to squeeze a bit more utility from everyday objects, which usually “just stand there and don’t say very much.”

Chen is an early adopter in the world of programmable tags, pieces of paper or plastic that sell for a few bucks apiece and communicate with gadgets via a short-range radio technology known as near field communication, or NFC. They can be customized to trigger an action on any phone with an NFC chip: Tap the phone against a tag on a business card to automatically download contact information, for instance, or tap a tag on your nightstand to set the morning alarm. “It’s very convenient,” says John Devlin, an analyst at ABI Research.

NFC tags are gaining a following as the number of smartphones able to scan them skyrockets. This year the research firm IHS iSuppli (IHS) expects manufacturers of smart devices will ship nearly 21 million NFC-enabled handsets in the U.S. and 186 million worldwide, up from 93 million last year. According to press reports,Apple (AAPL) is considering adding an NFC chip to the new iPhone expected this fall, which would give the technology a significant boost.

The tags are available from independent websites, and ABI estimates that by the end of this year there will be about 10 million of them in the U.S. as major mobile companies begin marketing them as a must-have feature. Earlier this year, Sony (SNE) began selling $20 SmartTags that can change the volume or launch news or weather apps on the company’s Xperia phone. In the past month, Samsung started selling TecTiles, a $15 package of five NFC tags, in T-Mobile (DTE) and Sprint (S) stores and will soon make them available on Amazon.com (AMZN). Some of the tags come already programmed to do a specific task, while others require users to download an application to customize each tag with one of several dozen possible actions.

Tagstand, which sells NFC tags and develops the software to program and manage them, was founded a year ago and now employs seven staffers. Its revenue tripled over a three-month period to $30,000 in May, the company says, and Tagstand expects to be profitable within six months. “We think the opportunity is massive,” says Chief Executive Officer Kulveer Taggar, a Brit who uses NFC tags to check into the location-based service Foursquare at his boxing gym. Tagstand has sold about 1 million NFC tags in the past year, and in June the company released a mobile app that simplifies the tag-programming process.

Some of NFC’s biggest advocates are event planners, who hand out specialized gear integrating NFC tags that can be scanned at stations set up around a venue. In May a third of the attendees at the Manhattan Cocktail Classic, held at the New York Public Library, used NFC-enabled bracelets that were linked to their e-mail addresses. As partygoers sampled the hundreds of cocktails available, they could tap their bracelet against NFC readers to have recipes sent to them.

On June 7 roughly 1,000 people at the Lobster Roll Rumble in New York City’s Metropolitan Pavilion used NFC bracelets to vote for their favorite crustacean dish. “Everyone thought it was the coolest thing,” says Kai Mathey, director of communications for event organizer Tasting Table, which paid Tagstand about $6,000 to set up the system.

Scanning NFC tags could become commonplace as they make their way into stores and books and onto movie posters. Says wireless-industry analyst Chetan Sharma: “Just like Google has become the starting point of interaction with information on the Web, NFC could become the starting point of interaction with the physical world.”

The bottom line: With nearly 21 million NFC phones shipping in the U.S. this year, early adopters are expected to deploy 10 million programmable tags.

Hope all’s well and that you are enjoying summer. Seattle is finally seeing its share of sun this week.

We just finished off a busy June with Mobile Breakfast Series events in Seattle, Atlanta, and London. Great discussions around OTT, Cloud, and Connected Devices with some of the leaders in the space. Check out the event recaps. We have more research coming out on the subject so stay tuned.

One thing is pretty clear – it is a great time to be a consumer. Choices abound. However, the key question in industry shifts is how the revenue will get distributed amongst the players and if any new money is going to come into the ecosystem. That will be the core of the discussion themes at our fall mobile executive summit – Mobile Future Forward on Sept 10th in Seattle and I am very pleased how the program is shaping up. We will provide regular updates as we continue to refine the program and announce more speakers. As you know, our programs are deep in content and high on participant caliber. Each year we strive to bring together some of the leading thinkers and doers from around the world to brainstorm the future of mobile. As we like to call it – it is a mobile boot camp with the brightest brains in mobile.

I am delighted to be partnering with some of the leading players in the mobile ecosystem: Intel, Ericsson, Juniper, Synchronoss, and Tekelec.

We are expecting a full house so grab your seats today. Early bird expires Tuesday – July 10th.

As you can see below, we have an outstanding group of executives who are responsible for changing the industry every day. Their viewpoints and commentary will be invaluable. The Mobile Future Forward team, our esteemed partners, our fantastic speakers and our engaged community are really looking forward to Sept 10th.

· Retail channel transformation – how are we going to shop and who makes money?

I hope you will join us in what is shaping up to be an exceptional gathering of the mobile minds. Registration is open now. Early bird will expire July 10th. The last two events were sold out so be sure to grab your seat to one of the most anticipated mobile gathering of the year.

June has been a very exciting month for us at Chetan Sharma Consulting. We took our Mobile Breakfast Series first outside Seattle to Atlanta and then, last week, outside US to London. Both places, it was very well received and we thank all the partners, speakers, and attendees who helped us out. On Jun 29th, we hosted our first European Mobile Breakfast Series at Wayra, Telefonica in London. My thanks to the Telefonica team for hosting us and making the whole experience worry-free. The topic of the discussion was Operator/OTT – The Way Forward. Regular readers would remember, we did a Seattle Breakfast Event on the same topic earlier in June. Wanted to get the European flavor of the same hot topic.

Operator traditional revenue streams are under threat esp. voice and messaging. Access margins will continue to stay under pressure. OTT players are coming in fast and furious and it is not just the big ones like Google but also players like Whatsapp, Voxer, Viber and others. How do operators play in the new landscape – lessen the decline of their traditional revenues while investing in new areas that improve their overall margins and revenues. Do they play the role of an enabler, a utility player, or become the OTT player themselves? In a software-driven world, how do they stay nimble? On the flip side, what are some things that operators can provide to the OTT players that make them successful, take them to the market quickly and maintain a long-term healthy and mutually-beneficial partnership? Operators still generate 70% of the global mobile industry revenues, so they are an important part of the chain but how do they ensure they have an equally relevant share in the profits. The panel will discuss how operators and OTT players think about the challenges and the opportunities, the competition and the coopetition.

To discuss the topic we had excellent panel with Jamie Finn, Director of Product Design at Telefonica Digital. This is a new unit within Telefonica that is doing some great work (recently released TU Me – a messaging application to compete with other VoIP/IP messaging apps) and Jamie is an integral part of the team.

Jamie was joined by Dominique Rougié, Director, TV Interactive Services & Media, Digital Innovation, Orange Group. Dominique has an interesting perspective since he is responsible for services across the three channels – online, cable, and mobile. From the OTT side, we had Andreas Bernström Chief Executive Officer, Rebtel. Rebtel is the second largest VoIP player after Skype with over $80M in revenue slated for 2012. Finally, we had Frank Meehan who has been doing OTT for a long time first at 3Uk and then at INQMobile. Some of the earliest OTT integrations of Skype, Facebook, and Twitter came from his team.

Some highlights from the discussion -

There is this myth perpetuating that operators are just going to fall over and die. AT&T has been around for 100 years and it is likely that they will be around for another 100. These companies will obviously morph and find their relevant role in the ecosystem.

It is likely that the operator business will segment into commodity access business and VAS business that generates more revenue.

OTT players need operators more than operators need OTT players.

The biggest challenge for the operators is internal – getting organized, giving the new group autonomy to operate and innovate independent of the parent organization.

Operators still have a lot of fat. Need to streamline.

It does require a different mindset from the operators to operate in the OTT world – embrace beta launches.

There are great opportunities for the operators in billing, payments, and commerce. Right now the process is cumbersome, can be made much simpler. It will help the OTT players as well.

Right now NFC traction is low, maybe Apple’s inclusion of NFC in the next rev will spur things up?

Rebtel is exploring transfer of credit and money between accounts as some of the new features for their service.

It less about technology and more about talent. How do you get the brightest people to work for your organization. 17 year olds can bring in lot of energy and drive to make something big.

Telefonica Digital launched TU Me – a messaging app in 100 days from concept to app store availability. Lot of learning right away – users cared and demanded a Spanish version which was duly built (The company released some figures yesterday – 250K active users in the first few weeks). The lesson is that you got to launch things quickly and iterate based on feedback.

Telefonica betting big on open mobile devices, essentially a new HTML5 based OS from Mozilla.

For Orange, in working with the OTT players – rev share is the primary business model. Additionally, for some companies, they will also take a financial stake. There is lot of value in operator becoming an aggregator of apps and content.

There are lot of opportunities for operators in identity, security, and privacy.

The best way to look at multiple opportunities is take portfolio-based approach. Invest in the best ideas and compete to win.

Mobile advertising is another big opportunity for the operator though they have been a bit behind the curve in leveraging their assets.

Operators bring the distribution power to the ecosystem. Have the relationship with the customers and for the right startup/app, they can help tremendously.

It is clear that a more clear regulatory regime is necessary but relying on regulators to fix some of the problems might be foolish as you will have to wait too long. Regulators on their part need to create an equitable playing field.

There is lack of consistency in regulations in Europe. For e.g. VoIP regulations vary from UK to France depending on who is launching the service and the competitive dynamics of the market.

For any new service, you have to first build engagement and get scale, only then can you think about monetization.

I really enjoyed the discussion and audience participation. We now take a break from our Mobile Breakfast Series and focus our attention to our annual mobile executive summit – Mobile Future Forward which is going to be held on Sept 10th in Seattle. We have an extraordinary group of executives who are joining us and I hope you can too.

Our good friends at GigaOM are holding their annual mobile event – Mobilize in Sept. Details below. Be sure to avail the discount

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